Submitted by Nic Lenoir of ICAP

Game plan has been to play long in Gold since 1,063. However we advised taking chips off the table partially at 1,125 as the market has not validate a break-out with a daily close. We have pulled back on the 1,097/1,100 support zone today, we would be cautious here. If we break lower the market will drop to 1,076 (61.8% of recent rally, and support zone established January 28/29), and possibly down to 985/1,011 which cannot be violated at the risk of invalidating the bullish dynamic completely (keep in mind we are still fighting deflation in most developed economies…). On the upside we need a daily close above 1,125, and then 1,165 to confirm a rise towards new highs. Note that a drop to 1,076 followed by a rise past 1,125 would form an inverted H&S so the market would likely accelerate past 1,165 at that point.

Price action here again is to watch in parallel to the Dollar Index which is disaplying quite a bit of bearish divergence in the short-term. Our macro view is still for the USD to continue appreciating rather sharply, but short-term pressure is building for a correction lower. of later we have had Gold climbing concurrently with the USD but on a large scale/ timeframe I am not convinced such a dynamic is very sustainable.